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Under California law, a commercial tenant who breaks a commercial lease by vacating the space early can be held liable by the landlord for unpaid rent. Commercial tenants should remember that commercial leases are different than residential leases: The law with respect to residential leases is much more forgiving when a tenant vacates. However, commercial landlords have much stronger legal protections under California law. If you find yourself thinking about vacating your commercial space before the end of your lease, you should seek the advice and counsel of a good San Diego corporate lawyer. Here is some basic information.
San Diego Corporate Law: Commercial Landlord’s Right to Rents When Tenant Breaches
A commercial lease is a contract. As such, California courts will enforce the contract. If the tenant vacates the premises early and stops paying rent, the tenant is in breach of the lease. The landlord can and will file a lawsuit to recover damages.
Aside from the rights and remedies that might be found in the lease itself, California statute provides various rights and remedies to a commercial landlord when a lease is breached. See Cal. Civil Code, § 1951.2.
Section 1951.2 provides that, upon termination of the commercial lease by the tenant’s abandonment or vacating of the property before the end of the term, the landlord may recover:
- Past due unpaid rent
- Unpaid rent for the balance of the lease term to the time of the trial judgment/award minus an amount “… that the lessee proves could have been reasonably avoided” — this means that a landlord has a duty to mitigate his or her or its losses
- Future unpaid rents beyond the time of the trial judgment/award minus an amount “… that the lessee proves could have been reasonably avoided” — these “future unpaid rents” are allowed only if the lease itself allows for the remedy or if the premises were relet before the trial judgment/award
- “Any other amount necessary to compensate the lessor for all the detriment proximately caused by the lessee’s failure to perform his obligations under the lease or which in the ordinary course of things would be likely to result therefrom.”
Let’s take an example. Assume you sign a 20-month commercial lease at $1,000 per month. Then:
- You make four payments and stop paying after that
- You stay for six months and then vacate
- You get sued by the landlord in month seven
- The trial is conducted in month 16 — landlord wins
According to section 1951.2, your landlord will collect for the two months of past due rent (months five and six; $2,000), then unpaid rents from the time of vacating to the time of trial/award (months seven through 16; $10,000). In order for the landlord to recover for the final four months, the commercial lease will have to give the landlord the right to those rents or the landlord will have to have relet the commercial space prior the 16th month. Assuming the former, the landlord will collect another $4,000.
Now, if the landlord is able to re-rent the premises for, say, $800 per month in month 10, then those rents paid by another tenant will be offset against the rents owed by you under terms of the lease and under section 1951.2. You will still be liable for $1,000 per month until the 10th month (unless you can show that the landlord could have obtained a tenant earlier than the 10th month). Under some circumstances, it is the landlord that must prove that in reletting the property he, she or it acted reasonably and in a good-faith effort to mitigate the damages. For a case example, see Lu v. Grewal, 30 Cal. Rptr. 3d 623 (Cal. App. 2nd Dist. 2005).
Contact San Diego Corporate Law
As you can see, commercial leases are complex and complicated. You should not breach a commercial lease without giving it serious thought and seeking guidance from an experienced business attorney like Michael Leonard, Esq. of San Diego Corporate Law. There may be other options such as finding a subtenant, assigning the lease, or negotiating with the landlord. Furthermore, the lease itself might have options that should be explored before breaching the lease. Contact Mr. Leonard via email or by calling (858) 483-9200.